USPS waits to hear if $800m pension pause is legal

Federal officials have said it is now up to the Department of Justice to determine whether the US Postal Service can legally withhold hundreds of millions in payments into its pension fund to avoid insolvency. As the USPS notified the Office of Personnel Management (OPM) yesterday that it wants to stop its biweekly $115m contribution to the Federal Employee Retirement System (FERS), OPM said the matter was for the DoJ’s Office of Legal Counsel (OLC) to decide.

OPM, which in past months has refused to recalculate USPS pension obligations despite regulator opinions that hefty overpayments have been made, said it was “sympathetic” to the situation in which the Postal Service finds itself.

It will continue awarding service credit under FERS until a decision is reached by the OLC.

Rapidly running out of cash thanks to declining mail volumes, USPS believes it can save $800m by September through using the $6.9bn surplus in its FERS pot to temporarily cover its employer’s contributions into the pension fund.

The move could come into effect tomorrow (June 24), subject to clearance.

OPM said if the Office of Legal Counsel says it is not legal to make use of the FERS surplus to cover payments, the Postal Service has agreed to continue with its original payment plan.

“This means that there will be no negative impact on future postal employees’ retirement. Current postal retirees will not be impacted at all. It is our most fervent hope that the issue is resolved as quickly as the law allows,” said OPM in a statement.

Congress

Symptomatic of the continuing descent of the US Postal Service towards financial oblivion, yesterday’s announcement on the FERS payments caused some concern among Congressmen – though no real changes in position.

House Republicans, a key barrier for USPS in reforming pension arrangements and access to as much as $75bn overpaid into retirement funds, stuck to their line that only cost-cutting and structural changes to USPS could help its viability.

Darrell Issa, the California Congressman who chairs the House Oversight committee and is set to unveil postal reform proposals today (June 23), said yesterday that stopping the FERS payments would “only” relieve 10% of the Postal Service’s projected deficit for the current year.

“USPS needs fundamental structural and financial reforms to cut costs and protect taxpayers from an expensive bailout,” he said.

Dennis Ross of Florida, the chairman of the Oversight committee’s postal subcommittee, said wholesale structural and financial changes were needed, “including staff reductions, office closings, delivery changes and responsible benefit funding”.

Ross tweeted today suggesting that the request by USPS to avoid its FERS payments only added weight to his belief that the Postal Service should go on pre-funding its health benefits fund for future retirees at a $5.5bn annual cost.

House Democrats urged their Republican colleagues to give their legislation, proposing reforms to USPS pension arrangements as well as other changes to improve the USPS financial situation, “prompt consideration”.

Oversight Committee Ranking Member Elijah Cummings and Stephen Lynch, Ranking Member of the postal subcommittee, issued a joint statement warning: “While a suspension of FERS payments may help now, the Postal Service will be unlikely to regain financial stability absent legislative action.”

Employee concerns

Postmaster General Pat Donahoe made a video address yesterday to calm fears among employees and current retirees that their pensions would be harmed by the Postal Service’s move to stop payments into FERS.

Donahoe stressed there would be no impact because of the $6.9bn surplus in the fund. “We simply are stopping this ongoing overpayment toward the annuity FERS retirees receive because we have already met that obligation,” he said.

The National Association of Letter Carriers yesterday added its belief that its members would not be affected.

NALC President Fredric Rolando said: “This action by the Postal Service to use the postal surplus in FERS to meet its payroll obligations to FERS does not directly affect our members, because OPM has agreed to continue to award service credit under FERS until the Department of Justice resolves the issue.”

Rolando added that the situation with FERS payments underlined the need for urgent Congressional action to address the USPS financial difficulties.

“This decision by the USPS reinforces the absolute necessity for Congress to do what we’ve been asking it to do for years, which is to address the Postal Service’s pension surpluses in CSRS and FERS and thereby resolve the postal financial crisis by giving the Postal Service access to its own money,” he said.